MNI BRIEF: More Flexibility On Rising Inflation - BOJ Noguchi

Bank of Japan board member Asahi Noguchi said on Thursday that the BOJ will need to increase the flexibility of easy policy to continue yield curve control when the expected inflation rate begins rising.

“If the 2% price rise is settled and rising the policy interest rate is to set, long-term interest rates will rise, incorporating future policy rate path into the rates,” Noguchi, a dovish board member, told business leaders in Niigata City.

However, Noguchi did not elaborate on when and how the BOJ should increase the policy's flexibility.

He added the yield curve could distort should the BOJ restrict long-term interest rate moves and that the BOJ may not be able to maintain YCC in a worst-case-scenario.

Noguchi also said import prices had driven the recent rise in inflation, while domestic macro economic factors had not strengthened. “The underlying inflation trend is needed to be stable around 2% in order to achieve the bank’s 2% price target after the impact of import prices wanes," he said. "Nominal wages need to continue rising to the level consistent with the bank’s 2% price target."

He added Japan’s economy was nearing a turning point as “a wage-price virtuous cycle” becomes apparent.